Philippines among strongest economic in ASEAN +3  

MANILA, Philippines — The Philippines is expected to post the strongest economic performance, alongside Vietnam, in the ASEAN+3 region this year, but growth will still likely fall short of government targets as inflation risks remain.

During the launch of the ASEAN+3 Regional Economic Outlook (AREO) on Tuesday, Singapore-based ASEAN+3 Macroeconomic Research Office (AMRO) said the Philippine economy may grow by 6.5 percent this year.

This is an improvement from last year’s 5.7 percent, but below the government target of a seven to nine percent growth for 2022.

AMRO’s latest forecast puts the Philippines at the top of ASEAN+3 in terms of gross domestic product growth. Vietnam is also seen registering a 6.5 percent expansion.

AMRO said the economies that were weighed down by the Delta outbreak last year are projected to see firmer growth this 2022.

The Philippines’ GDP projection at 6.5 percent is above the ASEAN expectation at 5.1 percent and that of the ASEAN+3 at 4.7 percent.

AMRO chief economist Hoe Ee Khor said the Philippines’ growth this year would be driven by both government and private sector spending.

“The Philippine economy has a pretty large output gap. So we expect that private spending will bounce back very rapidly once the economy is open much more fully,” Khor said.

However, AMRO said the economy continues to face several risks and challenges including a potential resurgence of COVID infections as the biggest threat to recovery in the short term.

Firm solvency also continues to pose a risk to the financial health of the banking sector.

While the impact from these risks may have somewhat abated, AMRO emphasized that capital flow volatility is set to rise this year as global financial conditions tighten.

“Some lasting damage caused by the pandemic as well as new trends catalyzed by the pandemic, have become clearer, raising the urgency for the authorities to take action to ensure resilient, sustainable, and inclusive long-term growth,” it said.

Further, AMRO estimates that headline inflation for the Philippines will accelerate to 4.1 percent this year from 3.9 percent in 2021.

Inflation in the country is expected to be above ASEAN+3’s average of 3.5 percent and is the same as Southeast Asia’s 4.1 percent.

“Inflation has ticked up and is now above the upper end of the target band. So we expect inflation to remain above the target band for most of the year,” Khor said.

Inflation in March jumped to four percent as expensive oil prices in the global market crept through other commodities on the domestic front.

“The Philippine economy still has a negative output gap. It has not fully recovered to pre-pandemic levels. So demand is still modest,” he said.

Because of this, Khor said inflation would likely go down to within the target band by next year, adding that the central bank may see no need to raise policy rates anytime soon.

“It’s important to make sure that inflation doesn’t become entrenched. And there’s scope for the central bank to start considering withdrawing some of the policy stimulus as the economy continues to gain traction and growth continues to recover,” he said.